Gold shows signs of strength despite strong dollar

By Covestor

Gold prices are usually inversely correlated to the value of the US dollar.

If the greenback moves up, gold moves down and vice versa.

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One can see from the following chart that this relationship played out in 2008 as well as 2011/12.

Gold revival?

I’m surprised how gold has acted during the recent run of US currency strength.

While the U.S Dollar Index reached a 10-year high this year, gold only briefly dipped below the critical $1,200 support level and has even gained in value.

Note what happened during 2005 and 2009 after dollar spikes (not marked on the chart): gold started to rally.

In addition, the brief dip below $1,200 showed how quick buyers stand ready to defend that level.

We are not exposed yet in the portfolios, but looking for entry points with compelling risk versus reward.


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Photo Credit: Eric Golub via Flickr Creative Commons

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